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CIARAN RYAN: The midsize corporate sector often receives insufficient attention in the South African economy and may not be properly supported by the banking industry—does that hold true? We’re about to dive into the details shortly.
This sector is a key driver of the South African economy, generating job opportunities. These companies tend to grow swiftly and hold a strong presence within their communities. With adequate support, they can significantly contribute to economic development.
Nedbank Mid-Corporate is dedicated to this market, starting with a thorough comprehension of the businesses and their needs. We are joined now by Herman de Kock, Executive for Mid-Corporate at Nedbank.
Hello, Herman. Thank you for being here. To start, could you clarify what constitutes the mid-corporate sector? How do you define it?
HERMAN DE KOCK: Ciaran, thank you for having me. Let’s first clarify mid-corporates. There are various interpretations of this category. At Nedbank Mid-Corporate, we define this group as established, family-owned, privately-held enterprises with strong growth histories, solid balance sheets, and diverse levels of gearing. Typically, these businesses have a turnover of around R800 million or more, with some reaching into the billions.
Most of these companies are not publicly traded and typically have evolved from family-owned initiatives. They may have at some point attracted institutional or ultra-high-net-worth investments and are often third- or fourth-generation family operations. Their history emphasizes a robust growth-oriented focus. This is how Nedbank Mid-Corporate perceives the market.
Through comprehensive research and client engagement—regardless of whether they are our clients—we aimed to deeply understand their requirements. Client feedback from the Nedbank Mid-Corporate sector indicated they don’t fit into traditional business banking or corporate investment banking categories. Their unique needs highlight an entrepreneurial spirit, leading to a sentiment that traditional service models often overlook them, leaving them feeling underserved.
CIARAN RYAN: Absolutely. Let’s explore this further soon. I’d like to better understand the significance of the mid-corporate market to the South African economy. My initial assertion was that it is not well-serviced, and your comments seem to support that. Why is that the case?
HERMAN DE KOCK: Engaging with the mid-corporate market first requires a solid grasp of their needs, recognizing their sophistication and established nature. These enterprises are well-versed in their industries and markets, having often been cultivated over generations. Many are family-owned and operated today, frequently in their third or fourth generation.
The key is not just to understand this, but to also appreciate their entrepreneurial spirit. This necessitates developing a banking model or a client value proposition specifically tailored to their situations. When we mention ‘Nedbank Mid-Corporate,’ we highlight that our mid-corporate banking solutions are crafted with these clients in mind. What does this entail?
It involves acknowledging their entrepreneurial drive and significant growth potential. We provide crucial advisory, creative, and transactional skills to support their growth initiatives. Our Corporate Advisory team assists clients in structuring their balance sheets to unlock such growth.
We take a holistic approach to understanding clients, fostering long-term relationships to grasp their journeys. This comprehensive view ensures our Corporate Advisory can address aspects like working capital financing, capital expenditures, growth financing, or private equity needs, which can vary considerably.
Importantly, we have a dedicated credit strategy focused solely on their requests, guided by a long-term vision to support their growth ambitions.
CIARAN RYAN: You might have noticed the surge of fintech enterprises entering the private credit markets and addressing specific challenges, particularly in the mid-corporate sector. Issues surrounding cumbersome credit approval processes persist. Have you addressed this concern?
HERMAN DE KOCK: We have, indeed, worked to alleviate this issue by establishing a dedicated credit framework. Each banker involved with the mid-corporate sector collaborates closely with a senior credit manager solely dedicated to that segment.
This arrangement allows the banker, along with their senior credit manager and analyst, to concentrate entirely on mid-corporate clients within their purview, thereby nurturing institutional knowledge and continuity. Additionally, we have a specialized credit committee focused solely on mid-corporate applications.
This method prevents confusion with applications from traditional business banking. Mid-corporate applications require more of an investment banking mentality, combined with appropriately tailored mandates for quicker turnaround times. We have received positive feedback from the market regarding our turnaround speed.
CIARAN RYAN: Can you share more about how swift those turnaround times are?
HERMAN DE KOCK: It varies based on the complexity of each credit case. For example, we developed a credit solution within a month for a client transitioning to Nedbank from another institution. This timeline included everything from understanding their needs to securing approval and ultimately disbursing the funds.
Considering the size and complexity of our clients, these are impressively quick turnaround times. For established clients, our responsiveness often allows us to act within just a few days.
CIARAN RYAN: Many of the mid-corporate, family-owned businesses we’ve discussed typically started with minimal debt. As they encounter growth challenges, they often require funds for expansion or asset financing while navigating a complex web of regulatory issues and capital access. How do you assist them in these areas? You mentioned having an advisory unit. What kind of advice do these businesses typically seek?
HERMAN DE KOCK: Let’s first address the capital needed for their growth.
It’s important to recognize that not all growth can rely solely on senior debt. We must identify which types of financing are sustainable within their growth strategy while exploring alternative funding options.
This encompasses Mez [Mezzanine] financing, which provides more patient capital, as well as private equity and equity funding. There’s also private credit, which you mentioned. All these financial solutions enable us to guide clients in optimal debt structuring to facilitate their growth.
From an advisory standpoint, we also help identify potential acquisition targets or buyers for assets clients may desire to divest to reallocate capital effectively.
As for regulatory concerns, as these companies expand internationally, they face a multitude of regulatory frameworks relating to exchange control and various jurisdictions. It’s crucial for us to assist clients in navigating this complexity.
Moreover, ESG [environmental, social, and governance] considerations are increasingly imposing regulatory pressures, not only financially but also in terms of knowledge and compliance. We partner with significant industry players, such as Six Capitals, to provide critical ESG-related advisory support.
CIARAN RYAN: It appears the businesses we are analyzing encompass various sectors, such as technology, manufacturing, retail, and agriculture. Does your team have the necessary expertise to meet these specific needs?
HERMAN DE KOCK: Yes, it is essential that we bring specialized industry knowledge to our clients. We possess significant expertise in sectors such as agriculture, both primary and secondary manufacturing, professional services, and diverse retail services, including franchising. Notably, numerous family-owned businesses originated from manufacturing and retail before expanding.
In summary, industry expertise is vital, and we are dedicated to deepening our understanding of the dynamics within these sectors and the banking solutions we offer.
CIARAN RYAN: To conclude, tell us about your background. Have you always worked in banking? How long have you been with Nedbank?
HERMAN DE KOCK: One might say I grew up in banking. I began my career early in research and consulting, focusing on IT and banking within both African and South African markets. I then joined Nedbank, and now, 23 years later, I’ve climbed the ranks. Eighteen of those years have been in Nedbank Business Banking and Commercial Banking, where I’ve gained rich experiences across a variety of exciting sectors in our economy.
CIARAN RYAN: That wraps up our conversation. Thank you for being here, Herman. That was Herman de Kock, Executive for Mid-Corporate at Nedbank.
Brought to you by Nedbank Mid-Corporate.
